GDP represents the added value of goods and services that the residents of a country produce. These goods and services are used in three different way:
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Consumption in the country, including all consumer goods and services. Another term for this is local consumption.
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Investment in the country, including all capital and investment goods. Another term for this is local investment.
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Exports.
All the goods and services that are not directed for export to other countries are used for local consumption and local investment.
A reminder:
Any product not classed as capital goods is counted in the consumer goods category. For example, bread relates to consumption, while plows are capital goods used in production. The relationship between GDP and its uses can be shown using the following formula:
GDP = Exports + Local Investment + Local Consumption
or: Y = C + I + EX
When: Y is GDP, C is Consumption, I is Investment and EX is Exports.
The left side of the equation is called sources, while the right side of the equation is called uses.
